Trade tariffs enter a new era

Key takeaways

Chip manufacturers in the US found a novel way to access the Chinese marketplace, while economic news came into focus on both sides of the Atlantic.

US tech giants fund their own export licences
Last week it was announced that two of America’s technology chip-making giants, Nvidia and AMD, had agreed to pay the US government 15% of the revenues from their chip sales in China, effectively in exchange for an export licence. The deal – the first of its kind – includes revenue from Nvidia’s H20 chip, which has been described as a security threat due to its potential to accelerate China's AI capabilities. The share prices of these businesses were not strongly affected by the news, as investors weighed the cost of the licence versus renewed access to the Chinese marketplace. Investors are also watching and waiting to see if this approach spreads to other tech businesses (Intel may be next on the list), or to other industries.

Higher prices taking a toll on US consumers
The latest inflation figures (measured by the Consumer Price Index, or CPI) were released on Tuesday. As expected, the figures showed that prices had risen for US consumers in July in a range of areas from healthcare to housing. However, the Producer Price Index (PPI), which measures inflation before it reaches consumers, jumped by more than expected. So far, it appears that businesses are trying to swallow a large portion of the price rises, but inevitably some are being passed on to customers. Given that the health of the US economy relies very heavily on its all-important consumers, this is a critical area to watch.

More strength than expected in the UK economy
The UK economy grew by 0.3% over the second quarter of the year (April-June). This performance was stronger than had been expected, supported by strength in the services sector, as well as construction activity. However, exports to the US hit a three-year low, falling by 13.5% amid the new tariff regime. Versus its global peers, the UK has negotiated one of the most generous trade deals with the US, but this still results in higher taxes than in the past.

Market moves

• It was a positive week for global stock markets, as investors balanced competing influences – from inflation updates to company earnings – on share prices.

• The pound strengthened slightly against the US dollar, lowering the returns for UK investors on overseas investments, once translated back into a stronger currency.

• UK and US government bond prices fell slightly, with bond yields (which always move in the opposite direction to prices) rising.

What to look out for this week

• A range of economic data is due to be announced this week, including inflation data in the US and UK, as well as an early look at key private sector survey data (the Purchasing Managers Index, or PMI) in major economies.

• Investors will have their eyes peeled for clues about the next steps for the US central bank, as its leader Jerome Powell speaks at a key economic conference (Jackson Hole) on Friday.

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